EMC controls more than 3 million square feet of office and manufacturing space on 495 in Hopkinton, Franklin and Bedford. Pictured, the company’s Franklin location.
Just when demand for office space and homes appeared to be finally picking up out on 495, in strides Texas computer giant Dell to mess things up.
There’s a lot of happy talk coming out of corner offices at Dell and EMC on the heels of the big announcement of their blockbuster, $57 billion mega merger.
We are told that EMC’s local presence will only grow bigger as it becomes the combined company’s hub.
Certainly the compensation packages of the top executives at both companies will expand dramatically, I’ll grant you that.
However, history shows there have been few merges without layoffs and this deal is no different, despite the spin Joe Tucci, EMC’s chief executive, and Michael Dell are eager to put on it.
Layoffs likely mean lots of office and other commercial space hitting a 495 office market that just recently got back to where it was before the Great Recession hit.
And lots of newly unemployed tech worker could also mean bad news for home prices along 495, which have lagged those along 128 and the inner suburbs.
“The market is good but not great,” said Stephen Woelfel, vice president of suburban brokerage at Colliers International. “There is still a lot of vacant space in the marketplace.”
Of course, the brass at EMC and Dell will be spouting off about “synergies” and downplaying the painful realities of their merger until the day the axes start to fall.
It’s just the way things work in corporate America. But the key facts all point to turbulence ahead.
Scott Van Voorhis
Heavy Debt
Dell and EMC are just the latest corporate giants facing long-term core challenges who are hoping that combining forces will work some sort of magic transformation.
EMC’s business of making big data-storage devices is increasingly overshadowed by the cloud, while Dell has been scrambling to move beyond its roots in the cut-throat PC business.
We have seen this movie many times before and we all know the ending.
Dell will have to borrow an astounding $50 billion to seal the deal – the chief executive of rival HP estimates the interest payments alone will be $2.5 billion a year.
That comes atop the $18 billion Michael Dell borrowed back in 2013 to buy back the then-publicly traded company and take it private.
It’s a recipe for cuts and layoffs, an activity in which EMC is already heavily engaged.
The storage center giant slashed 1,500 jobs in the first quarter alone and rolled out plans to wring out another $850 million in costs over the next two years, including more jobs cuts.
Those plans are still on the books.
Of course, it will take time for things to settle out. First Dell has to close the deal and then hammer out plans to combine the two computer giants.
It could be a year before we have clearer picture of where the cuts will be coming and what units, products and ultimately employees will get the axe.
That said, there’s certainly a lot of real estate out on 495 that could hit the chopping block.
EMC controls more than 3 million square feet of office and manufacturing space out on 495 in Hopkinton, Franklin and Bedford, with a payroll of more than 9,700 across the state. Just a 10 percent reduction in its real estate holdings would flood the 495 market with hundreds of thousands of square feet of empty space.
While the manufacturing space would likely get scooped up, empty offices are a harder sell right now on 495. EMC’s old Hopkinton headquarters sat on the market for years, empty, until the company recently sold it off.
Unfortunately, the storm clouds are building just as the 495 office market shows signs of life.
The amount of empty office space out on 495 is back down to 17 percent, about where it stood in 2009 when the Great Recession hit, after rising to more than 22 percent by 2010/11, according to a recent JLL report.
Rents are back to $19 a square foot – again, about where they were in 2009.
Marlborough has been a particular bright spot, having finally succeeded in leasing out empty Fidelity and HP campuses, the latter dumped after Carly Fiorina’s disastrous decision to mash HP together with Compaq.
There’s even hope for the more than 3 million square feet of Class B office space sitting on the market, some of it empty for years.
Encouraged by the modest turnaround, developers are looking to “reposition” some of that space as the market tightens, JLL reports.
And it’s not just the office market, but residential real estate values that could be in for a shock along the 495 corridor.
EMC is the 800-pound-gorilla when it comes to employers in the outer suburbs, with huge numbers of employees living in Franklin, Hopkinton and other towns along the highway.
Maybe all the happy talk, for once, will come true and the new Dell/EMC will rocket into the next dimension, hiring thousands of new employees as revenues surge.
But a more likely possibility is that big cuts are coming. And that will once again make 495 a buyers’ market for real estate of all types.
